Dashboard software

Metrics and KPIs

Metrics

In
general, the idea of business intelligence might be boiled down to computerizing
the management. With multiple tools, managers get supported in their
everyday tasks what - as a result - facilitate whole managing. Nonetheless,
it's not so easy to connect management with computers. To reach that,
diverse metrics have been worked-out. And metrics - being a base for
whole business intelligence - are the thing which this article is about.

What
exactly are metrics?

As
for the beginning, a few words of explanation are needed. Metrics -
even though they seem obvious and simple - have to be properly-comprehended.
Understanding their idea is indispensable for further metrics operating,
from designing to using in practice.

The
shortest definition explains that a metric is a measure of anything.
That's all. Nevertheless, the shorter definition is, the more things
it usually includes, and so it is in case of metrics. Whilst managing
a company, we get numerous reports every day. What do these reports
include? Multiple metrics and what comes out of them. When an employee
says that there only are seven nails left, what is it? A metric. In
a word, it might be said that metrics are all the numbers that concerns
each of company's aspects or areas.

Number
of people employed in each department, sales rate, number of lorries
owned, and customers' attention. There are plenty of metrics which form
depends mostly on department which they're being used at. Thereupon
- to choose a few examples only - for manufacturing department one of
the most important metrics would be a product return rate. Then, in
case of services department, important might be the number of calls
from unsatisfied customers. Finally, employee retention rate trend is
meaningful for human resources department.

We
might say that there are plenty of numbers that describe our company.
They all are metrics, but the thing is to present them in a way that
enables making conclusions. In point of fact, metrics aren't random
numbers and values - they usually are precisely selected so that each
of them has its source and point. It's not to take a few values which
nothing comes out from. All these metrics have their specific meaning
in company's performance. Thereupon, a number of green carets isn't
a metric unless we manage a carpet factory. A height of employees isn't
a metric, too, unless it influences on the company (in case of builders,
height might be important, unlike programmers, for instance).

Later
it would be explained how to choose metrics to work efficiently for
our company. Up to now we know what the metrics are, and what they are
being used for, so there is only one term left. The KPIs - or Key Performance
Indicators - which also are common in case of business intelligence.
What exactly are they? What is the difference between metrics and Key
Performance Indicators, and how to distinguish one from another?

KPIs - the special metrics

The
easiest it would be to say that all KPIs are metrics, but not all metrics
are KPIs. It's a simple dependency that - in fact - doesn't explain
anything. To start with the very beginning, acronym KPI comes from Key
Performance Indicator. It's a name of specific metric which is crucial
for the company. And here comes the most meaningful difference - KPIs
are crucial metrics, and metrics as a whole are all usable numbers.
If it's not understandable yet, a few examples should clear up the thing.

The
age of concrete employees usually isn't vital for a company. Time passes,
employees get older and older, but - in fact - there are plenty of more
important things than one retiring worker. Thereupon, concrete ages
are nothing more than metrics. But let's see it from another point of
view - the average age of employees of each department might be significantly
more meaningful, depending on company's profile. Due to that - in some
cases - average age might be a Key Performance Indicator.

Then,
an example of customers' satisfaction is worth considering. One, concrete
customer usually isn't so important, especially in case of larger companies.
The group of customers matters, though. Thereupon, customers' satisfaction
might be thought to be a Key Performance Indicator, but how to measure
it? In fact, the thing isn't difficult, nonetheless we shouldn't expect
precise information. We might rate customers' satisfaction basing on
the number of calls to services department of our company. It should
help us discover whether the customers like our product and whether
they are likely to buy it again. On the other hand, considering each
call accurately, we should get to know what exactly we should change
about our products.

The
common feature of most Key Performance Indicator is the fact that most
of them are strictly - and inseparably - connected with company's targets.
The number of produced carpets is a metric, but this number against
target production might be a KPI. What's the difference? If we wanted
to produce two thousands carpets, and have already managed to produce
five hundreds for instance, all we have to do is to adjust a proper
KPI:

500/2000*100%=25%

While
500 is a metric, 25% is a KPI. Here is the difference between KPIs and
metrics. In fact, metrics themselves say nothing about general company's
condition. On the other hand, KPIs say nothing about company's performance's
details. In most cases, Key Performance Indicators are being used for
comparing company's achievements to its goals. KPIs do not have to be
presented as a ratio (or percentage, though), but it's their most common
form. Moreover, it's the form that illustrate the situation in the best
- and the fastest - way. Thank to KPIs, managers who know almost nothing
about company's core, might quickly gather whether the company is on
or off track.

Building a successful metrics structure

Metrics
and Key Performance Indicators are already known. It's been also said
that usual company have plenty of metrics and only sparse KPIs. But...
Are all metrics common for every company? The same with KPIs - are they
the same for every company? No, they're not. If they were, they would
lose all their sense. In point of fact, every company has to prepare
own set of metrics and KPIs. It's not easy, but extremely important,
therefore managers should pay enormous attention to it as once made
choice will impinge on future every time anyone wants to know something
about company's performance.

How to choose proper metrics and KPIs?

There is no simple solutions, nonetheless there are a few steps which every manager should consider to improve the efficiency of its choices.

Selecting the metrics and
KPIs never is easy, therefore it's good to have at least one experienced
specialist in team. Building a group of people to design the
metrics is indispensable and the choice of its participants - extremely
important. The thing is to collect people who know everything about
the company and its dependencies. Thereupon, there are a few things
that have to be followed. These are qualifications, knowledge,
and balance. In practice, the team has to include qualified people.
At second, the knowledge is indispensable for choosing the metrics -
all participants of the group have to know exactly what the company's
strategy is and what the goals are. Finally, the balance also is needed
not to focus on chosen aspects solely whilst omitting the others, also
important in case of metrics designing.

Having a group of people
who know general company's goals is not the end of the road, yet. Before
the works start, there is a need to clarify what the goals exactly are
and clear up all the doubts. There no longer is a place for the unknown.
All people not only have to understandthegoals
and the strategy, but also agree to them. It's also important,
after all.

There was a lot said about
metrics and Key Performance Indicators, but there was no information
about where they're being used at. The answer is dashboards. All the
metrics have to support dashboards' work. Moreover, dashboards are the
tool which managers use to control the metrics, therefore - before choosing
concrete metrics - we should choose the type of dashboard we
want to use. There are free common types of dashboards - strategic,
operational, and tactical - and each of them is being used for different
purposes. Due to that, we need to decide which type suits our company
best.

Having chosen the type of
dashboard, it must be decided which level of the company the
dashboard is supposed to be deployed on. In a word, whether it have
to be the top of the company or rather a departmental level. This also
matters in case of choosing appropriate metrics as we have to know what
people will have an access to dashboards. The demanded end-users have
also influence on choosing the type of dashboard, thereupon the second
and the third step are tightly connected.

There are ten steps that
need to be followed, but listing the metrics is in a half of the way,
though. Now, when all the dilemmas about dashboards are solved, we might
turn to metrics themselves. As for the beginning, all we have to do
is to list metrics and Key Performance Indicators, so that we
have a bunch of them suitable for each of strategic objective. On this
step, we should think about all the usable measures and try not to forget
about anyone. Don't also think that there is too much of metrics - this
is just a general list.

Having the list, we should
examine the metrics and KPIs. Thereupon, all we have to do is to
check whether they are good and meaningful enough to credibly illustrate
company's performance. To reach that, we should check whether the KPIs
truly are "SMART". It's another acronym - specific, measurable,
achievable, result-oriented, and time-bound. We should then check all
the metrics this way and - as a result - choose the ones that seem the
best. The easiest method for that would be to score metrics in each
category and then to find the ones with the highest total.

As we have already rated
the metrics, we might then choose the most important and meaningful
of them. It's not easy, because mathematical evaluation might sometimes
not illustrate the reality in a way it should be. Thereupon, we should
once again consider metrics' "weight".

Once we have a bunch of
KPIs selected, we might take care of each of them separately. Up to
now, the KPIs are only the numbers which are difficult to understand.
Thereupon, we should design a method for presenting them. There's no
rule, but whole job might be boiled down to visualizing the metrics
- this is where all the colors, charts, alerts, and arrows take place.
The thing is to present KPIs in a way to let end-users focus on what's
really important and begin with the most meaningful parts.

Once the all decisions are
made, the thing is to save them. Thereupon, what managers usually do
is preparing a document where all KPIs with their circumstances
are described. Although it's not a place for analyzing each KPI from
the very beginning, the reasons why each KPI had been chosen happen
to be useful. In a word, all we have to do is to report what's been
stated and why. Then, the document has to be spread - all further dashboard's
users and company executives have to know what are the metrics and how
to use them properly. Moreover, they need to know how each KPI illustrate
an aspect of company's performance.

As soon as KPIs are designed,
there is a time to introduce them to the company. When all the needed
information are known, specialists might begin preparing a dashboard
and software structure that bases on chosen metrics.

It's
all about metrics and KPIs. As they're vital for modern business intelligence,
no manager could afford disregarding them. Thereupon, choosing the metrics
shouldn't be something to hurry up with.